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57 year old Retiree with 2cr MF & Rental Income: Can I Afford Retirement?
Ramalingam Kalirajan |8077 Answers |Ask -Follow
Mutual Funds, Financial Planning Expert - Answered on Oct 03, 2024
Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Question by harikrishnan on Oct 02, 2024Hindi
My age is 57 and just taken early retirement. I have a corpus of 2cr invested MF'S. I have three houses, (in Chennai, Hyderabad and Cochin) one we live and rental income of 30k from the other two. No loan or liabilities. My son has completed PhD abroad and have to complete his marriage for which expenses will be from Corpus. Approx 30L. Our monthly expenses are around 70k (withdrawing 30k monthly through swp) and will the corpus and rental be sufficient for our retirement period considering another 25-30 years of life span. Have medical insurance for 30L family floater. Harikrishnan Ramakrishnan
Ans: You have successfully transitioned into early retirement. This is a significant milestone and deserves appreciation. You have a strong financial foundation to support your lifestyle and goals.
Your total corpus of Rs 2 crores invested in mutual funds provides a solid base for your retirement. You also own three properties in Chennai, Hyderabad, and Cochin, with two generating rental income of Rs 30,000 per month.
Your monthly expenses are around Rs 70,000, of which you are withdrawing Rs 30,000 through a Systematic Withdrawal Plan (SWP). You have a well-structured medical insurance policy with coverage of Rs 30 lakhs for your family.
These factors contribute to a promising financial outlook for your retirement years. However, it’s important to evaluate your resources to ensure they are sufficient for your expected lifespan of 25 to 30 years.
Income Sources and Financial Sustainability
Your primary income sources include:
Rental Income: You receive Rs 30,000 monthly from rental properties. This totals Rs 3.6 lakhs annually.
SWP from Mutual Funds: You are withdrawing Rs 30,000 monthly, which amounts to Rs 3.6 lakhs annually as well.
Total Income: Your total annual income from rental and SWP is approximately Rs 7.2 lakhs.
Your estimated expenses of Rs 70,000 per month lead to total annual expenses of Rs 8.4 lakhs.
This creates a shortfall of Rs 1.2 lakhs annually, which will need to be covered by your mutual fund corpus.
Evaluating the Corpus for Longevity
You have Rs 2 crores in mutual funds. Let’s assess how long this corpus can sustain your retirement lifestyle.
Estimated Annual Withdrawals: If you continue with your current SWP of Rs 3.6 lakhs annually, your total withdrawals from the corpus will be Rs 3.6 lakhs.
Impact of Withdrawals on Corpus: If you maintain this withdrawal strategy, the corpus will deplete faster due to your shortfall in income.
Considerations: Based on historical market performance, your mutual fund investments can grow over time. The actual growth will depend on market conditions and the performance of your funds.
Strategies to Ensure Financial Stability
To enhance the sustainability of your retirement corpus, consider the following strategies:
Reassess Your SWP
While your SWP strategy allows for regular income, it may not be the most efficient approach if there are shortfalls.
Recommendation: Evaluate the possibility of adjusting your SWP amount. If possible, consider lowering your monthly withdrawals to better match your income from rentals.
Exploration of Alternative Withdrawals: If you find it challenging to reduce your SWP, think about temporarily pausing your withdrawals until your rental income increases or other sources of income become available.
Explore Investment Growth
Your mutual fund investments are critical for long-term growth. Ensure you are invested in funds that align with your goals.
Recommendation: Focus on actively managed mutual funds with a strong performance track record. These funds have the potential to outperform passive strategies over the long term, especially during volatile market conditions.
Performance Evaluation: Regularly assess the performance of your mutual funds. If some funds consistently underperform, consider reallocating those investments to better-performing options.
Maintain an Emergency Fund
It’s wise to keep an emergency fund to cover unexpected expenses.
Recommendation: Ensure you have enough liquid funds available to cover at least 6 to 12 months of your living expenses. This will help you avoid withdrawing from your investments during market downturns or personal emergencies.
Location of Emergency Fund: Consider keeping this emergency fund in a high-yield savings account or liquid mutual fund for quick access.
Review Monthly Expenses
Regularly reviewing your monthly expenses can help identify areas to save.
Recommendation: Analyze your current expenses to see where cuts can be made. Reducing discretionary spending can increase the longevity of your corpus.
Budgeting: Create a budget that reflects your essential and non-essential expenses. This will allow you to allocate funds more efficiently and identify potential savings.
Preparing for Future Expenses
You mentioned the upcoming marriage of your son, with an expected expense of approximately Rs 30 lakhs. This will impact your corpus significantly.
Recommendation: Plan for this expense well in advance. Since this is a substantial amount, consider allocating a portion of your mutual fund investments specifically for this purpose.
Investment Strategy: To accumulate funds for this expense, you may want to increase your investments temporarily. This could include redirecting a portion of your SWP to a dedicated fund for your son’s marriage.
Healthcare Considerations
You have a family floater medical insurance policy with coverage of Rs 30 lakhs. This is a good measure for health-related expenses in retirement.
Recommendation: Regularly review your health insurance coverage. Ensure it remains adequate as medical costs continue to rise.
Incorporate Health into Financial Planning: Plan for potential healthcare expenses in your overall financial strategy. This may involve setting aside a separate fund for medical emergencies or treatments.
Final Insights
You have a solid financial foundation for your early retirement. Your strategy should focus on ensuring the longevity of your corpus while managing expenses effectively.
Balance Income and Expenses: Continue to monitor your income from rentals and the withdrawals from your mutual funds. This balance is crucial for your financial health.
Consider Additional Income Sources: If possible, explore ways to generate additional income, such as part-time work or freelance opportunities that align with your skills and interests.
Professional Guidance: Consider consulting a Certified Financial Planner for personalized strategies. They can provide tailored insights based on your specific situation and goals.
With careful planning and consistent monitoring, your corpus can sustain your retirement lifestyle for many years. Stay proactive and adapt your strategy as needed.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Your total corpus of Rs 2 crores invested in mutual funds provides a solid base for your retirement. You also own three properties in Chennai, Hyderabad, and Cochin, with two generating rental income of Rs 30,000 per month.
Your monthly expenses are around Rs 70,000, of which you are withdrawing Rs 30,000 through a Systematic Withdrawal Plan (SWP). You have a well-structured medical insurance policy with coverage of Rs 30 lakhs for your family.
These factors contribute to a promising financial outlook for your retirement years. However, it’s important to evaluate your resources to ensure they are sufficient for your expected lifespan of 25 to 30 years.
Income Sources and Financial Sustainability
Your primary income sources include:
Rental Income: You receive Rs 30,000 monthly from rental properties. This totals Rs 3.6 lakhs annually.
SWP from Mutual Funds: You are withdrawing Rs 30,000 monthly, which amounts to Rs 3.6 lakhs annually as well.
Total Income: Your total annual income from rental and SWP is approximately Rs 7.2 lakhs.
Your estimated expenses of Rs 70,000 per month lead to total annual expenses of Rs 8.4 lakhs.
This creates a shortfall of Rs 1.2 lakhs annually, which will need to be covered by your mutual fund corpus.
Evaluating the Corpus for Longevity
You have Rs 2 crores in mutual funds. Let’s assess how long this corpus can sustain your retirement lifestyle.
Estimated Annual Withdrawals: If you continue with your current SWP of Rs 3.6 lakhs annually, your total withdrawals from the corpus will be Rs 3.6 lakhs.
Impact of Withdrawals on Corpus: If you maintain this withdrawal strategy, the corpus will deplete faster due to your shortfall in income.
Considerations: Based on historical market performance, your mutual fund investments can grow over time. The actual growth will depend on market conditions and the performance of your funds.
Strategies to Ensure Financial Stability
To enhance the sustainability of your retirement corpus, consider the following strategies:
Reassess Your SWP
While your SWP strategy allows for regular income, it may not be the most efficient approach if there are shortfalls.
Recommendation: Evaluate the possibility of adjusting your SWP amount. If possible, consider lowering your monthly withdrawals to better match your income from rentals.
Exploration of Alternative Withdrawals: If you find it challenging to reduce your SWP, think about temporarily pausing your withdrawals until your rental income increases or other sources of income become available.
Explore Investment Growth
Your mutual fund investments are critical for long-term growth. Ensure you are invested in funds that align with your goals.
Recommendation: Focus on actively managed mutual funds with a strong performance track record. These funds have the potential to outperform passive strategies over the long term, especially during volatile market conditions.
Performance Evaluation: Regularly assess the performance of your mutual funds. If some funds consistently underperform, consider reallocating those investments to better-performing options.
Maintain an Emergency Fund
It’s wise to keep an emergency fund to cover unexpected expenses.
Recommendation: Ensure you have enough liquid funds available to cover at least 6 to 12 months of your living expenses. This will help you avoid withdrawing from your investments during market downturns or personal emergencies.
Location of Emergency Fund: Consider keeping this emergency fund in a high-yield savings account or liquid mutual fund for quick access.
Review Monthly Expenses
Regularly reviewing your monthly expenses can help identify areas to save.
Recommendation: Analyze your current expenses to see where cuts can be made. Reducing discretionary spending can increase the longevity of your corpus.
Budgeting: Create a budget that reflects your essential and non-essential expenses. This will allow you to allocate funds more efficiently and identify potential savings.
Preparing for Future Expenses
You mentioned the upcoming marriage of your son, with an expected expense of approximately Rs 30 lakhs. This will impact your corpus significantly.
Recommendation: Plan for this expense well in advance. Since this is a substantial amount, consider allocating a portion of your mutual fund investments specifically for this purpose.
Investment Strategy: To accumulate funds for this expense, you may want to increase your investments temporarily. This could include redirecting a portion of your SWP to a dedicated fund for your son’s marriage.
Healthcare Considerations
You have a family floater medical insurance policy with coverage of Rs 30 lakhs. This is a good measure for health-related expenses in retirement.
Recommendation: Regularly review your health insurance coverage. Ensure it remains adequate as medical costs continue to rise.
Incorporate Health into Financial Planning: Plan for potential healthcare expenses in your overall financial strategy. This may involve setting aside a separate fund for medical emergencies or treatments.
Final Insights
You have a solid financial foundation for your early retirement. Your strategy should focus on ensuring the longevity of your corpus while managing expenses effectively.
Balance Income and Expenses: Continue to monitor your income from rentals and the withdrawals from your mutual funds. This balance is crucial for your financial health.
Consider Additional Income Sources: If possible, explore ways to generate additional income, such as part-time work or freelance opportunities that align with your skills and interests.
Professional Guidance: Consider consulting a Certified Financial Planner for personalized strategies. They can provide tailored insights based on your specific situation and goals.
With careful planning and consistent monitoring, your corpus can sustain your retirement lifestyle for many years. Stay proactive and adapt your strategy as needed.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Asked on - Nov 02, 2024 | Answered on Nov 02, 2024
Sir, Even though I accept the point of generating additional income through other sources could not understand your calculation of the mutual fund corpus and swp withdrawal. If out of 2 cr even if 30 lakhs is removed for son's marriage and 30-40 lakhs considered as reduced due to market volatility even then 1.4 cr will be leftover. Not considering any compounding growth in the corpus if yearly withdrawals through swp is 3.6lakhs then the corpus should suffice for 30 years atleast. Even if inflation is going to increase, the compounding growth of the balance capital should be able to cover up this differential in my opinion. I accept the fact that some portion has to be diverted to liquid and emergency funds.
Even after this I fail to understand your calculation of reducing the swp as this is very minimal considering the above factors. Kindly clarify.
Ans: Harikrishnan. I appreciate your attention to detail and your valid insights on your corpus sustainability. You’ve outlined a practical viewpoint, and I’ll clarify the reasoning behind my previous assessment and address the key aspects you’ve highlighted.
Corpus Longevity and SWP Analysis
Firstly, you’re absolutely correct in noting that even after accounting for major expenses, such as Rs 30 lakhs for your son’s marriage and market fluctuations, your remaining corpus of approximately Rs 1.4 crore is substantial. You’ve also correctly identified that compounding growth can help cover future inflation to a significant extent. Let’s break down the factors that contribute to sustainable withdrawals.
1. SWP for Minimal Lifestyle Disruption
The current SWP of Rs 3.6 lakhs annually is conservative, as you noted. Based on an Rs 1.4 crore corpus, this SWP rate is just over 2.5% per annum.
Given that a balanced mutual fund portfolio can reasonably achieve an annual return of 8-10% over the long term, this withdrawal rate would generally be sustainable and even allow for periodic adjustments.
Your plan is indeed realistic: this SWP rate should comfortably support you for 25-30 years, assuming market performance aligns with historical averages.
2. Compounding Growth vs. Inflation Impact
While your corpus is likely to grow through compounding, inflation will increase living expenses, especially over a 25-30 year horizon.
Inflation Rate Impact: With inflation potentially averaging 5-6% annually, your expenses may double or more in the next 20 years.
Balancing SWP and Corpus Growth: By starting with a conservative SWP rate, you allow more of your corpus to grow during the early years, creating a cushion for potential increases in withdrawals as expenses rise over time.
3. Adjusting the SWP Gradually
Reducing or adjusting your SWP isn’t mandatory at this stage but is a potential strategy to keep as a contingency. If you’re comfortable with the current withdrawal rate and your portfolio growth continues positively, there’s no immediate need to reduce the SWP.
Emergency Fund Consideration
Setting aside a portion of your corpus in a liquid fund for emergency needs is also a wise approach, as you mentioned. This reserve can cover any unexpected expenses without disrupting your SWP withdrawals.
Recommendation: Consider earmarking a portion (such as 6-12 months of expenses) in a highly liquid, low-risk instrument. This step not only provides financial flexibility but also shields your main corpus from frequent withdrawals due to emergencies.
Final Insights
You’ve clearly thought through the sustainability of your corpus and SWP, and your assumptions are practical and reasonable. As long as your portfolio maintains a balanced asset allocation, your current withdrawal rate should support your lifestyle and provide room for future inflationary adjustments.
Your understanding of using compounding growth to counter inflation is sound, and your strategy of relying on a conservative SWP aligned with portfolio growth should help meet your retirement goals with minimal disruption.
Thank you for allowing me to clarify these points, Harikrishnan. Your plan is well-thought-out, and with continued monitoring, you’re on track for a secure retirement.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Corpus Longevity and SWP Analysis
Firstly, you’re absolutely correct in noting that even after accounting for major expenses, such as Rs 30 lakhs for your son’s marriage and market fluctuations, your remaining corpus of approximately Rs 1.4 crore is substantial. You’ve also correctly identified that compounding growth can help cover future inflation to a significant extent. Let’s break down the factors that contribute to sustainable withdrawals.
1. SWP for Minimal Lifestyle Disruption
The current SWP of Rs 3.6 lakhs annually is conservative, as you noted. Based on an Rs 1.4 crore corpus, this SWP rate is just over 2.5% per annum.
Given that a balanced mutual fund portfolio can reasonably achieve an annual return of 8-10% over the long term, this withdrawal rate would generally be sustainable and even allow for periodic adjustments.
Your plan is indeed realistic: this SWP rate should comfortably support you for 25-30 years, assuming market performance aligns with historical averages.
2. Compounding Growth vs. Inflation Impact
While your corpus is likely to grow through compounding, inflation will increase living expenses, especially over a 25-30 year horizon.
Inflation Rate Impact: With inflation potentially averaging 5-6% annually, your expenses may double or more in the next 20 years.
Balancing SWP and Corpus Growth: By starting with a conservative SWP rate, you allow more of your corpus to grow during the early years, creating a cushion for potential increases in withdrawals as expenses rise over time.
3. Adjusting the SWP Gradually
Reducing or adjusting your SWP isn’t mandatory at this stage but is a potential strategy to keep as a contingency. If you’re comfortable with the current withdrawal rate and your portfolio growth continues positively, there’s no immediate need to reduce the SWP.
Emergency Fund Consideration
Setting aside a portion of your corpus in a liquid fund for emergency needs is also a wise approach, as you mentioned. This reserve can cover any unexpected expenses without disrupting your SWP withdrawals.
Recommendation: Consider earmarking a portion (such as 6-12 months of expenses) in a highly liquid, low-risk instrument. This step not only provides financial flexibility but also shields your main corpus from frequent withdrawals due to emergencies.
Final Insights
You’ve clearly thought through the sustainability of your corpus and SWP, and your assumptions are practical and reasonable. As long as your portfolio maintains a balanced asset allocation, your current withdrawal rate should support your lifestyle and provide room for future inflationary adjustments.
Your understanding of using compounding growth to counter inflation is sound, and your strategy of relying on a conservative SWP aligned with portfolio growth should help meet your retirement goals with minimal disruption.
Thank you for allowing me to clarify these points, Harikrishnan. Your plan is well-thought-out, and with continued monitoring, you’re on track for a secure retirement.
Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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